Simon Johnson: Private Gain, Public Loss--The Real Cost Of Too-Big-To-Fail

Simon Johnson is one of those rare economists who knows how to talk about economics in Plain English. He has a breathtakingly strong resume. He does not have any particular political axe to grind. And he pulls no punches. He draws the line of direct relationship between the reckless bankers, the complicit governments, and the miseries created by both on the ground around the world.

OS just encountered this recent address of Johnson, and it is well worth a few minutes spent viewing. He points out, for instance, that Citigroup has blown up three times in the past thirty years, each time rescued by the public sector in one way or another.

Johnson really gets going in his summation at about the 8:00 mark.

Quote Of The Day, 18 October 2010

From Jesse, naturally. And OS sincerely hopes he's mistaken!

But it's certainly worth sharing, because Jesse can by-golly use the English langauge.


"The world will soon wake up to the reality that everyone is broke and can collect nothing from the bankrupt, who are owed unlimited amounts by the insolvent, who are attempting to make late payments on a bank holiday in the wrong country, with an unacceptable currency, against defaulted collateral, of which nobody is sure who holds title."

So, How Does The Real Estate Mess Play Locally?

This is a local example of the bigger problem.

You'll see the local bank's front page, quaint as it is, with a list of properties for sale. This has been a recent addition to the web site, by the way.

Look at listing #7, asking $108,000. I walk into the bank, and it's advertised in a circular on the table where customers fill out their deposit slips--zero money down, bank financing at 5%, 8K tax credit for first-time home buyers, the whole shooting match. No takers, the flyer has been there for many weeks, updated with the tax credit offer.

Visit the house, and you find it's a block off a busy highway, overlooking used car lots, the back side of the former Wal-Mart location, a tattoo parlor, surrounded by weedy lots, eroding at a healthy clip. A true Jim-the-Realtor moment.

This could never have been intended as an owner-occupant property. With mortgage, insurance and taxes totalling well over $750 a month, no one can rent it for a profit.

Something will have to give, (like about $50,000 off the asking price), and it will be a rental for some person of very modest income, or it will have to be torn down.

The list on the bank's site is growing.

And this is Tennessee, not California.

Such a strange tale, it must be true...

This article should give us all pause, encourage humility, and discourage hubris.

It's the first-person account of the obscure geek who wrote the software that allow banks and brokerages to turn all manner of financial trash into AAA-rated securities.

It wasn't that everyone was making money hand-over-fist; it was that everyone developed a belief that they were bullet-proof, that nothing could go wrong in the system they had built.

If we think that we 'obscure' people can't have an enormous impact, for good or ill, on the world around us, this man's story should cure us of that particular illusion.